The upshot of this whole nearly 100 post discussion?
I've figured out something that will probably carry us through *many* situations in life.

I've seen the 'light' that spanking obviously does not teach anything, that's why I came with a post like this. Because I want another response.
I am actually pretty glad isolation doesn't work with this child...because it really doesn't *teach* anything either, especially in a situation like this.
If I could replay this particular scenario....here's what I would want to do and why.
I would want MY MOM to be the one to take the time away from DD. (which she would want to do)
Why? Well, because when somebody treats you like that, you *don't* want to be around them. It doesn't matter if you are 3 or 103, doesn't matter if the person doing it to you is 3 or 103, you don't want to be around a person who is being mean to you. I think this is the best way for someone to learn what kind of treatment you're going to accept from them.
And DD is going to hear whatever needs to be heard much better from me, a person who she is not angry with at the moment.
The first thing she's going to hear, the minute I step between them, (and I would, you'd have to know these two to know that I as parent need to step into this scene and take over if I want it to go non-punishment-like) is a firm "We DO NOT spit on people!" Boundary drawn. From there, Grandma has left the room, and DD and I can talk about what happened and better reactions.
I almost guarantee that within a few minutes of Grandma being alone in her room, DD will want something from her. Which would give us an opportunity to talk about why Grandma went to be away from her and what she can do to help Grandma know that she is sorry and want to be around her again. (she *would* be sorry, she's sweet and doesn't *want* to hurt anyone, she is THREE and doesn't think ahead when she's overcome by anger and frustration at not being able to do something she wants to do)
I think this gives her an opportunity to interact and *learn from* this situation, and that it addresses the behavior at hand without imposing anything 'fake.'
And it avoids the power-struggle that *is* me attempting to use time-out with her. Don't ask me why it works for her dad and not for me, doesn't matter, *I* need to do what works between her and me.
*my mom* would likely think I've not really "done anything" but that is her problem. She had her chance, this is mine.